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Keywords

trustcorporation
appealaffidavittrustcompliance

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Elliott Associates v. J. Henry Schroder Bank & Trust Co., 838 F.2d 66, 56 USLW 2496, Fed. Sec. L. Rep. P 93,614

Facts

Elliott Associates held $525,000 in convertible subordinated debentures issued by Centronics Data Computer Corporation. Centronics intended to redeem these debentures and, after discussions with the trustee, Schroder, the trustee waived the 50-day notice requirement, allowing the redemption to proceed. Elliott alleged that this waiver deprived debenture holders of an additional $1.2 million in interest payments, claiming it constituted a breach of the trustee's duties under the indenture and the Trust Indenture Act.

The instant action was brought by a debenture holder who sought to represent a class of all debenture holders under the trust indenture. The debenture holder alleged in its complaint that the trustee waived a 50–day notice period prior to the redemption of the debentures and did not consider the impact of the waiver on the financial interests of the debenture holders.

Issue

Did the trustee have a duty to consider the financial interests of the debenture holders when it waived the 50-day notice requirement for redemption?

The central issue on this appeal is whether the district court properly held that the trustee was not obligated to weigh the financial interests of the debenture holders when it decided on March 12, 1986 to waive Centronics' compliance with section 3.01's 50–day notice requirement.

Rule

The trustee's pre-default duties are limited to those expressly provided in the indenture, and no implied duties exist to protect the financial interests of debenture holders beyond those specified.

No such implied duty can be found from the provisions of the Act or from its legislative history.

Analysis

The court found that the trustee acted within its discretion as allowed by the indenture when it waived the 50-day notice requirement. The waiver was deemed satisfactory given the small number of debenture holders and the nature of the complete redemption. The court emphasized that the trustee's obligations were strictly defined by the indenture and that no additional duties were imposed by the Trust Indenture Act or state law.

From Siever's affidavit, it is clear that Schroder complied with the letter and spirit of the indenture when it waived compliance with the full 50–day notice.

Conclusion

The court affirmed the district court's dismissal of the action, concluding that the trustee did not breach any duties owed to the debenture holders.

In view of the foregoing, we affirm the judgment of the district court which dismissed Elliott's action.

Who won?

Schroder, the trustee, prevailed because the court found that it acted within its rights under the indenture and had no obligation to consider the financial interests of the debenture holders when waiving the notice.

We agree with the district court that no breach of duty was stated here.

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